Samson Corporation issues $200,000,10%,five-year bonds at 103.The total interest expense over the life of the bonds is:

Question

Quizplus · Accepted Answer

The total interest expense over the life of the bonds can be calculated using the following formula:

Total interest expense = (Face value of bonds) x (Annual interest rate) x (Number of years) - (Amount received from selling bonds)

In this case, the face value of bonds is $200,000, the annual interest rate is 10%, the number of years is 5, and the amount received from selling bonds is $200,000 x 1.03 = $206,000 (because the bonds were sold at 103% of face value).

Plugging in these values:

Total interest expense = ($200,000) x (10%) x (5) - ($206,000 - $200,000)
= $100,000 - $6,000
= $94,000

Therefore, the correct answer is D ($94,000).

Samson Corporation Issues $200,000,10%,five-Year Bonds at 103